UK Edition
Britain will next year be the only developed country with fewer people in work than before the Covid crisis after a surge in early retirement and ill health, experts have said.
The UK employment rate is still 1 percentage point below its pre-pandemic level and is unlikely to bounce back in 2023, according to the Institute for Employment Studies (IES).
By contrast, the European Union's employment rate is 2.1 points above its level at the start of 2020. Employment is 0.6 points higher for the average country in the OECD club of rich nations.
Only Latvia and Switzerland have performed worse than the UK so far, but both their employment rates are now recovering and are likely to surpass their pre-Covid peaks next year.
It came as separate research from audit firm KPMG and the Recruitment and Employment Confederation suggested that job growth is slowing down in Britain, with the number of people hired into permanent new roles falling in October for the the first time in 20 months.
Claire Warnes, a partner at KPMG, said: “The looming recession is clearly impacting the UK jobs market."
The IES found that in Britain, the number of people classed as "economically inactive" - neither in a job, nor looking for work - has risen by 600,000 in the past three years.
This has been driven by 50,000 workers taking early retirement and around 360,000 more people suffering long-term health problems - a figure thought to include many older people who have in effect retired early because they are too ill to ever go back to a job. An increase in the number of people who are studying accounts for most of the remaining difference.
Tony Wilson, director of the IES, said: “We're quite unusual internationally. Most countries are not struggling with participation the way we are."
The increase in long-term sickness has coincided with record NHS waiting lists, which reached 7 million for the first time ever in August.
With lower migration and the large generation of baby boomers retiring, a smaller labour force will likely become a lasting change, according to the IES.
Mr Wilson said that government policy has done little to improve the picture. He suggested that more should be done to help disabled people get jobs and to support families struggling with childcare costs.
Meanwhile, there are concerns that Treasury plans for a tax raid on pension savings will spur more middle-class professionals to retire early.
Rishi Sunak and Jeremy Hunt are expected to freeze the lifetime allowance again later this month, limiting the maximum that can be saved into a pension pot without incurring tax penalties to £1m.
Many older people close to hitting this limit are expected to retire and take their pensions instead of breaching it.
Mr Wilson described the policy as a “flipping mess”, which is already “causing problems on keeping people in senior and well paid [jobs]”, although he expects the impact on the wider workforce to be limited.
Workers exiting the labour force are driving up inflation and so causing interest rates to rise, the Bank of England's chief economist Huw Pill said this week.
Having fewer workers means there is greater pressure on employers to compete by offering higher wages, even as the economy is tipping into recession.
Andy Haldane, former chief economist at the Bank of England, said poor health is increasingly a factor holding back the workforce and so the economy, the Guardian reported.
"We're in a situation, for the first time probably since the Industrial Revolution, where health and wellbeing are in retreat," said Mr Haldane.
A spokesman for the Department for Work and Pensions said the Government will invest £1.3bn in employment support for disabled people over the next three years. It is also focusing on bringing down unemployment among the over-50s, they said.
“We are also investing an extra £22m to tackle unemployment among over-50s, including expanding our Jobcentre Mid-Life MOT service and providing tailored support through our Older Worker Champions. That investment is paying off as there are now two million more workers 50 and over in work than in 2010,” the spokesman added.